The U.S. government deficit is creating an income problem for Americans because paying that debt diverts money from private investment, which can hurt wage growth, USA Today reported Thursday.
NEW YORK, June 27 (Xinhua) — The U.S. government deficit is creating an income problem for Americans as their debt payments divert money from private investment, which can hurt wage growth, it was reported Thursday. USA Today.
“The debt explosion could result in a reduction in wage income of up to 10% within 30 years,” said Kent Smetters, a professor at the University of Pennsylvania’s Wharton Business School and director of the Penn Wharton Budget Model initiative.
Based on a median household income of about $75,000, that represents a reduction of $7,500 in current dollars per year for the average household, he added.
To pay for the increased spending, the government is issuing debt securities such as Treasury bills and bonds with higher interest rates to attract investors. When investors put money into government debt, they do so at the expense of more productive private investment, something economists call the “crowding out effect,” the paper said.
Private investments can include developing new products and technologies, constructing buildings and roads through loans, or buying stocks or bonds, the article continues.
The U.S. Congressional Budget Office (CBO) estimates that for every dollar added to the deficit, private investment falls by 33 cents, ultimately reducing economic growth and wages.
Last week, the CBO raised its estimate for the government deficit this year by 27 percent, or $408 billion more than its projections last February, to $1.9 trillion. The estimated increase in the national debt is partly due to student debt relief measures, higher spending on health insurance and aid to Ukraine, according to the CBO.
Additionally, the Bureau projects the deficit will rise to $22.1 trillion in the coming decade, $2.1 trillion more than its previous projections, according to USA Today.
 US: Rising deficit impoverishes Americans (USA Today) – Xinhua){kind=link}